You Need to Know What ConocoPhillips Had to Say About its Key Focus Areas

Oil and gas major ConocoPhillips recently held its 2014 analyst meeting, where management reviewed its performance last year and its major priorities going forward. Management took pride in the company's performance last year, in which it generated healthy production growth. It's clearly a leader among the industry in which it operates, along with other independent exploration and production heavy-weights like Occidental Petroleum .

Here are a couple of major takeaways from ConocoPhillips' analyst meeting, including its core priorities and how it views the next few years shaping up.

Key priorities: Margins and productionConocoPhillips maintains a two-sided core focus, which is to enhance both oil and gas production, as well as improve profitability. The company holds a long-term average annual production growth rate of between 3%-5% annually, which will be driven by new discoveries and development of existing programs. Last year, ConocoPhillips announced four separate major discoveries in the deep-water Gulf of Mexico which the company is very optimistic about.

The most recent discovery was at Conoco's Gila well, in which it holds a 20% working interest. Conoco has partnered with European oil major BP . BP is the operator of the Gila well.

The latter area of focus is to enhance profitability, which will be driven by margin expansion. ConocoPhillips achieved 11% cash margin growth last year, which places it near the top of its peer group. Double-digit margin growth gives a solid boost to profits, and allows for Conoco to pay an industry-leading dividend with its cash flow. This is what places Conoco ahead of most of its competitors in the independent exploration and production space. Its dividend yield sits at about 4%, which is roughly 100 basis points above Occidental Petroleum's dividend yield.

Shift in capital allocation aheadConocoPhillips advises investors it's about to undergo a major shift in its spending priorities. On the whole, Conoco is actually going to spend more this year. It will budget as much as $16.7 billion toward capital expenditures, which would represent a $400 million increase from last year's budget. However, Conoco is allocating much more money to what it calls its development programs, while trimming back on its established major projects.

Management will proceed with a 60% increase in development program spending through 2017. This will be used to enhance early stage programs to focus on organically building out the portfolio to sustain growth over the long term. Plowing more money into its development programs will allow for a greater mitigation of base decline, and solidify its production growth in order to more easily meet its forecast.

Geographic areas of focusInterestingly, Conoco is shying away from North American gas this year, where it's devoting only 5% of its capital expenditures over the next three years. Instead, Conoco is devoting a lot of its capital spending over the next few years to North American oil, as well as liquefied natural gas and international oil and gas. This isn't much of a surprise, since those areas generate much higher margins.

For example, North American oil, oil sands, and international oil and gas production results in $30-$40 per barrel margins. By contrast, North American gas only generates a margin of $10-$15 per barrel. Because of this, Conoco is devoting much less to development of North American gas this year, and its production of North American gas will decline even further through 2017.

The bottom lineConocoPhillips is focusing on two core areas of focus this year, which are reliable 3%-5% total production growth and increasing cash margins. To accomplish these goals, management is shifting spending toward development programs this year. In terms of geographic operations, Conoco is ramping up production of oil both domestically and internationally, as well as liquefied natural gas. The end result is that Conoco won't be nearly as heavily involved in North American gas as it once was.

Management hopes these initiatives will allow the company to achieve its core production and margin growth rate forecasts. These are important milestones, since they result in strong profits and give the company the financial flexibility to pay its industry-leading 4% dividend yield

Growing production from Conoco and peers helps these MLPsRecord oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a look at three energy companies using a small IRS "loophole" to help line investor pockets. Learn this strategy, and the energy companies taking advantage, in our special report "The IRS Is Daring You To Make This Energy Investment." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free.